Why big techs are slowing hiring or mass layoffs

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Twitter, Meta, Amazon and Apple form the group of so-called big techs, as large technology companies are known, many of them created or with a strong presence in Silicon Valley, in the United States, and with a history of disruptions, whether in technology, communication or business model.

But recently the big techs are also gathered in another group: that of large companies in the process of mass layoffs or hiring pauses. Meta and Amazon, for example, have laid off more than 20,000 employees in recent weeks due to rising costs and the current macroeconomic environment.

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On Friday (18), hundreds of Twitter employees chose to resign from the company after an ultimatum from the new owner, Elon Musk. The platform had already cut 50% of its employees shortly after Musk took the helm, according to the social network’s head of security and integrity earlier this month.

For experts, big techs have experienced a favorable scenario in recent years, especially with the pandemic, due to social isolation, with companies seeking a greater digital presence.

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In this context, these companies in the technology sector carried out a large volume of hiring, having an exponential growth from the base to the positions of high level of specialization that, naturally, are more expensive.

Meta, which owns Facebook, for example, went from 48,268 employees in March 2020 to more than 87,000 in September of this year.

Post-pandemic and war

After these boom years, the post-pandemic scenario is different. The rise in prices caused by the breakdown of global chains and the war in Ukraine, added to the increase in interest rates by central banks around the world, has impacted the technology sector. This explains Rafael Nobre, an international analyst at XP.

“Currency tightening ends up causing an economic slowdown. Many countries or regions today are even at risk of going into recession. This slowdown is directly reflected in the balance sheets of these companies, which end up suffering from a drop in revenue and, currently, still have the aggravating factor of inflation, which causes an increase in costs”.

On Monday (14), Apple CEO Tim Cook, in an interview with US broadcaster CBS, confirmed that the company has slowed down hiring due to the current economic environment.

In July, when announcing a slowdown in the pace of hiring for the remainder of the year, the alphabetparent company of Google, wrote: “Like all companies, we are not immune to economic headwinds.”

On Wednesday (16), Amazon confirmed that the layoffs had begun at the company, two days after several outlets reported that the e-commerce giant planned to lay off around 10,000 employees. The retailer has not confirmed – nor denied – that number.

Even before confirming the layoffs, the company had also reported a break in corporate hiring and that it must keep this policy in place for months.

“We anticipate maintaining this pause for the coming months and will continue to monitor what we are seeing in the economy and business to adjust as we feel makes sense,” Beth Galetti, senior vice president of people experience and technology at Amazon, said in a memo to employees earlier this month.

Nobre says that, historically, in cases of recession, the profits of American companies tend to contract, on average, 12.1%. Consequently, the assessment is that these companies are preparing for the tougher times ahead. “Our global macroeconomic strategy team works with a moderate recession as a baseline scenario in 2023”, he adds.

Arthur Igreja, specialist in Technology and Innovation recalls that big techs depend on software licenses or advertisers, areas that were impacted by the resumption of face-to-face activities and the relaxation of the announced restrictive measures.

Just this year, the streaming giant, Netflix, carried out about 450 layoffs – 150 in May and 300 in June – citing slowing revenue growth and loss of advertisers. The company’s shares fell by around 70% in the first half of 2022.

The letter published by the CEO of Meta, Mark Zuckerberg, to clarify the dismissal of 11 thousand employees of the company cites precisely the changes in online commerce and the drop in advertising revenues.

“Not only has online commerce returned to its previous trends, but the macroeconomic downturn, increased competition and the loss of advertising signals have caused our revenue to be much lower than I expected. My reading was wrong and I take responsibility for that.”

O CNN Brazil Business contacted Twitter, Meta, Apple and Amazon for a position on the layoffs. In response, Apple said it would not comment on layoffs that have reportedly taken place at the company. Meta already informed that all the information is present in the letter released by Zuckerberg. Finally, Twitter and Amazon have not responded so far.

What to expect

The expectation now is that the technology giants follow the trend of preserving resources, experts believe. “Probably we will not experience a scenario of very low interest rates and very low cost of capital as we saw in the last decade. In the coming years, we will have to deal with inflation and structurally higher interest rates, which is a less favorable scenario for high-growth companies”, evaluates Rafael Nobre.

The impacts of the monetary tightening seen globally, mainly those announced by the Federal Reserve (Fed – the central bank of the United States), are already beginning to be felt in the economy. Therefore, this slowdown ends up demanding a more efficient and lean structure so that companies can maintain their profitability.

Therefore, experts understand that going forward it is unlikely that we will see investors taking a very high risk in search of higher returns, since fixed income becomes more attractive.

“Above all, they are looking more and more like standard companies. Big techs had a giant dominance on the American stock exchange, especially throughout the 2020s and 2021s, and now they face the same issues as other companies. They were always treated as if they were an absolutely separate category and now reality has hit and they are having to make these adjustments”, summarizes Arthur Igreja.

Lessons for Silicon Valley

According to experts, the lesson that remains for Silicon Valley leaders is that these companies are not detached from the real world.

“The lesson for Silicon Valley is that in the coming years the era of “growth at any cost” is over. Companies should focus on profitable structures that generate cash and are sustainable,” says Rafael Nobre.

For Arthur Igreja, the legacy of this scenario is that these companies need to work with more realistic estimates and learn that even Silicon Valley gurus also make mistakes.

“We are seeing this not only with big techs, but with cryptocurrency companies, where FTX is the big one. marry from the moment. It is a lesson in humility, where it is important to know that it is not always possible to sustain growth. And these companies rely heavily on projections, generous and optimistic bills. And now, more and more, they have to generate cash and have a certain austerity”.

Source: CNN Brasil

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